DBRS: HBAN’s 4Q Solid; Lower Mtg Bkg Income & Higher Spread Income; Loan and Deposit Growth

Summary:
• 4Q14 earnings applicable to common shareholders of $155.7 million, up 5.9% from the prior quarter.
• Huntington’s income before provisions and taxes (IBPT; DBRS’ core income metric) decreased moderately, QoQ, due to modestly lower adjusted revenues and slightly higher adjusted expenses (on an adjusted basis, excluding non-core items).
• DBRS rates Huntington Bancshares Incorporated’s Issuer & Senior debt at BBB (high) with a Stable trend.

DBRS, Inc. (DBRS) views Huntington Bancshares Incorporated’s (Huntington or the Company) 4Q14 results as sound, reflecting sustained solid growth in both loans and deposits. Moreover, asset quality continued to improve, and provisions for loan losses declined. Benefiting from several large recoveries, net charge-offs remain at very low levels.

Overall, adjusted revenues decreased slightly during the quarter, with lower adjusted non-interest income more than offsetting spread income growth. During 4Q14, lower mortgage banking income more than offset improved levels of capital markets fees, trust services revenues and electronic banking fees.

Reflecting franchise strength, loan growth was sustained and broad-based, led by growth in automobile loans. Indeed, despite a 2 bps narrowing of the net interest margin to 3.18%, higher levels of loans and securities drove improved spread income, QoQ. DBRS notes that Huntington continues to increase highly liquid securities in preparation for LCR implementation.

Expenses remain relatively high, reflecting the Company’s continuing investment in its franchise During the quarter, adjusted expenses (excluding merger, franchise re-positioning charges, and addition to litigation reserves) were up moderately, led by higher levels of professional services and healthcare expenses. For 2015, management anticipates expenses to grow between 2.0% and 4.0%.

Huntington’s sound asset quality continues to strengthen, as evidenced by stabilizing levels of non-performing assets and very low net charge-offs, which likely have hit a floor. Meanwhile, funding remains solid, underpinned by a growing deposit base, reflecting higher sequential levels of non-interest bearing demand deposits. Finally, capital remains solid, even with balance sheet growth and stock repurchases.

DBRS rates Huntington Bancshares Incorporated Issuer & Senior debt at BBB (high) with a Stable trend.

Note:
All figures are in U.S. Dollars unless otherwise noted.